When compared to the gold price, gold mining stocks look attractive — here are two on The Motley Fool's radar.
Suddenly, a burst of optimism has come over world stock markets…
The ASX is set to cap a fourth consecutive week of gains, the longest stretch of increases since January, and only the second time in the past 20 months.
Global stocks have risen more than 8% since the start of June, and are up 3.5% in the past five sessions alone.
Over in the UK, as well as cleaning up on gold medals, the UK's index of leading shares is on a tear, with the FTSE 100 index closing in on its peak for 2012.
Charlie Aitken of Bell Potter has taken this optimism one step further, confidently and boldly predicting the end of the ASX's 5-year bear market.
Glenn Mumford in The Australian Financial Review joined in the party, recently saying "…equity markets could be heading a whole lot higher over coming months."
Bear or bull…we're here for you
Bear market or bull market, here at The Motley Fool we just keep looking for good companies trading at attractive prices.
And the thing is…whatever the market, whatever the economy and wherever Australia finishes on the Olympic medal table, there will always be buying opportunities.
Sometimes you just have to look a little harder.
As we mentioned recently, we thought the dash for dividend stocks, particularly the likes of Commonwealth Bank of Australia (ASX: CBA), ANZ (ASX: ANZ) and Telstra (ASX: TLS), was getting a little over-heated.
Not that we're against dividends — quite the contrary in fact — more that resource stocks were being left behind.
We've largely avoided the resources sector for 2 reasons…
1) We find it hard to predict the future prices of commodities like iron ore, nickel, copper and coal. Supply and demand are constantly changing, and that's before you add commodity speculators into the mix.
2) We were seeing better opportunities elsewhere, as witnessed by our picks in the technology, retail, insurance, biotechnology and telecommunication space.
Stocks we love
As investors, nothing gets us excited as low prices on unloved stocks. We recently recommended a stock which had fallen to a seven-year low. But where others saw a business in permanent decline, Motley Fool Investment Analyst Scott Phillips saw value.
It's only early days, and Scott thinks the stock could have much further to run, but the shares are already up almost 8% since our recommendation. The fully franked grossed-up dividend yield of around 12% is the icing on the cake.
For a change, however, we're also seeing value in the resources sector.
It seems we're not the only ones to have spotted their relative attractiveness, especially when compared to the gold price… U.S. Global Investors has also highlighted the gap between the price of gold and that of gold miners' share prices.
Mind the gap. But probably not for long…
Panning for gold stocks
We're actively researching the gold sector. As usual, we're looking for unloved, undervalued stocks with minimal downside but exciting upside potential.
One we mentioned recently was Fool Analyst Mike King's favourite, Silver Lake Resources (ASX: SLR) — stick it on your radar.
We won't necessarily win any points for originality, but if you're looking for gold stock exposure, another one worth considering is Newcrest Mining (ASX: NCM).
Top fund manager Perennial like the stock, recently saying…
"We continue to like the investment thesis for Newcrest, with around 25% valuation upside to the stock price based on our valuation estimates. We expect a stabilisation of operational performance to the end of calendar year 2012 before we see substantial growth into calendar year 2013 from both the Cadia Valley and Lihir operations as a result of the investment the company is currently undertaking."
Who are we to argue? We'll take a winning pick over originality any day.
A basket of gold stocks
We're currently down in the dirt researching a couple of other very interesting smaller emerging gold mining stocks.
Much can and will go wrong with gold miners – flood, ore quality, mine-life, rising costs, strikes, exploration-risk, injury/death — so we'd be wanting a particularly large margin of safety before recommending such stocks.
Another way to mitigate the risk is to buy a basket of such stocks — 2 or 3 emerging gold miners which added together, might make up a 5% position in your portfolio.
As ever, we'll keep you posted on our shopping expedition.
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Motley Fool General Manager Bruce Jackson has an interest in Commonwealth Bank, ANZ and Telstra. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691).
